As far back as 2007, we have heard the threat come from China that in retaliation against sanctions that the US may place on their country, that they would in turn liquidate their holdings of more than a trillion shares of American Treasury Bonds.
When you start to hear these sorts of threats from a Communist country, one that we have large and important trade and financial relationships with, one has to question just how much of our financial dependence is tied to this country.
You may be surprised by the answers you come away with after some digging.
How did we get here?
It’s a well known fact, and unfortunate for the United States as a nation, that we do not save money. Because of this fact, the US economy is dependent on other countries to help with their influxes of cash to keep our economy going strong. Basically, we need money from other countries that have a high rate of savings, in order to actually fund our federal budget deficit.
Many Americans may be totally unaware of this fact, but China has been involved in the practice of heavily limiting the appreciation of their currency, the Yuan. Basically, this manipulation of their currency has allowed China to purchase large quantities of Foreign Exchange Reserves or FER for short, and much of that was bought here in US Treasury Reserve Notes, and they have been investing since early 2006, and at this point they
own “1.3 trillion shares” of our bonds.
China’s foothold in the US
Due to America’s own shortsightedness, we find ourselves in a less than advantageous situation concerning Communist China. Here is a nation that we have allowed to purchase major holdings of our treasury debt, and now unfortunately they have a controlling interest in that debt.
If this country, that has a government that is totally anathema to what America stands for, ever did decide to turn those bonds in; it would be catastrophic to our own economy. As a matter of fact, the general consensus among many economists is this: That many shares of bonds being turned in for redemption could throw this country into another depression.
What brought about this threat?
Well basically, this is something that China had threatened to do back in 2007, in response to debates being held at that time in Congress. The debate was about placing sanctions on China over their alleged artificially devalued currency, something which was mentioned earlier in this article.
So because of their outrage at the possibility of not allowing Chinese goods from entering our country or taxing them at a higher rate, their response to this posturing in Washington was the threat of using those bonds and possibly trade those reserves in for say the Euro.
You now understand the basic scenario here, because of their controlling interests; China could with one fell swoop turn our economy on its ear.
As of this writing, China has divested a whopping 97 percent of their holdings in American Treasury Bills. What that amounts to is now they own a total of 5.69 billion (that’s Billion Dollars people!) in holdings of those bonds. This was as of March of this year, as reported in the Treasury Report. But while China was divesting in one strategy, they were just buying more of our debt through longer term securities, which our government assures us they have begun to also divest their shares of. But the bottom line for America is that China still has 1.1449 trillion dollars of holdings in America.
Here is where it becomes interesting, because as long as there is always that threat of China liquidating their share of our holdings, we always face the possibility of waking up either very poor -- with the dollar not worth the paper it’s printed on -- or heaven forbid one day being ruled under a communist regime.
All it takes is the toppling of just one domino, and it starts a chain reaction of events that, sadly with the financial debt that America continues to pile on, we may never get out from under. And we’re not just talking about this problem being here in our children’s lifetime, no, we’re speaking to generations after you and I are long since just rotting flesh in the earth.
Something in America needs to change. But it may be too late too do anything that can save our nation from economic disaster.